Auctions, Intermediaries and Innovation
Chapter 5: Auctions for Technology Transactions
5.1 INTRODUCTION TO AUCTION THEORY Auctions are among the oldest negotiation mechanisms for price formation; they appear in various fields and in multiple contexts to trade a wide range of assets. Traditionally, among the most prominent assets traded in auctions are art, antiques, and wine.1 However, in recent years, auctions have been applied for an increasing range of tangible (for example, second hand industrial machinery exported to third world countries, real estate properties, etc.2) as well as intangible assets, including, for example, various types of services (for example, craftsmen services for house repairs, travel services, software developing services, and problem solving services) or IP assets (for example, patents and 3G licenses).3 Recently, auctions have been developed by TMI to facilitate technology transactions which firms might use for the more efficient creation of innovations. In the context of ETE, Birkenmeier (2003) was among the few scholars to label auctions a ‘marketbased approach’ to determine technologies’ values in addition to other approaches (for example, existing market prices, and exact utility-based approaches). Although auctions are among the oldest and most widely used trading mechanisms, their theoretical foundations have just recently been established. According to Berz (2007), Milgrom (2005), Klemperer (2004), and Vickrey (1961) auction theory was largely derived from game theory. The widespread use of auctions as a trade or a negotiation mechanism for price formation, has drawn scholars’ attention to this field and led to the foundation of a new field in economics some fifty years ago. According to Berz (2007)...
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